Oil: The Philippines Is Challenging China Again Over A Disputed Sea

This photo taken on April 21, 2017 shows an aerial shot of a reef in the disputed Spratly islands on April 21, 2017. Philippine Defense Secretary Delfin Lorenzana flew to a disputed South China Sea island on April 21, brushing off a challenge by the Chinese military while asserting Manila's territorial claim to the strategic region. (TED ALJIBE/AFP/Getty Images)

More than two years ago Philippine energy officials called off drilling for oil and natural gas in a sensitive part of the South China Sea that Beijing claims as its own. The Southeast Asian country’s Department of Energy froze that ambition because the Philippines was preparing for world court arbitration with China over who has the more rightful rights to the tract of sea. The location is called Reed Bank, an 8,866 square-kilometer table mount 80 kilometers from the Philippine island of Palawan.

Now the Philippines is ready to let drilling restart there, according to domestic news reports such as this one. The drilling would strongly irritate China, which believes more than 90% of the sea including Reed Bank to be its own – despite the July 2016 arbitration verdict saying otherwise. China in turn won’t quite know what to do: give the Philippines another break to sustain their friendship, which keeps China’s chief rival Washington at bay, or start a fight. Strong push-back would risk letting the United States tighten its grip on the Philippines but consolidate Beijing’s ever-growing control of the sea over the objections of Brunei, Malaysia, Taiwan and Vietnam, as well as the Philippines. Beijing's claims overlap waters that each of the others calls its own.

“It presents China with a double problem,” says Euan Graham, international security director with the Lowy Institute for International Policy in Sydney. “If it came in heavy handed, that would compromise Duterte’s position, and Duterte is their best asset in the Philippines," he says. "The flip side of that is China is taking very strident positions on all its external boundaries at the moment with the upcoming congress.” China’s 19th Communist Party congress will probably take place in November, and its Chairman Xi Jinping will appointed then to a new term if all’s going well for him.

China had figured the Philippines was its friend for now. Its president, Rodrigo Duterte, has set aside the bulk of their maritime dispute since he took office in June 2016, even after the world court ruled that China lacked a legal basis for its claims. In October China pledged $24 billion in aid and investment. You could impolitely call that shut-up money for not squawking to the world court anymore. In a conversation in May with Duterte, China even threatened some sort of struggle if the drilling proceeded, per widespread Philippine media reports. No surprise if the aid spigot suddenly stopped flowing, too.

It looks like everyone’s on base in Manila. As of 2015, Forum Energy of the United Kingdom had a 70% stake in Service Contract 72 at Reed Bank and Metro Manila-based Philex Petroleum Corp. held about 60% of Forum Energy, according to the nonprofit research firm Institute for Maritime and Ocean Affairs. Monte Oro Resources and Energy Inc. of the Philippines was another stakeholder then in Service Contract 72, the institute says. They were ready to look in 2014 for an expected wealth of oil, natural gas or both under the seabed.

Duterte needs to swing back toward the bulk of his voters once in a while, so China might see any drilling from that angle. Most Filipinos distrust China despite an uptick in those who like it, a survey by Metro Manila-based Social Weather Stations found in the first quarter this year. Duterte said in April he would build new infrastructure on the nine Spratly Islands that it already holds in the South China Sea. China on the whole let that go. It will probably do that again over any Reed Bank drilling to stop another tide of pro-world court sentiment in the Philippines and calls to increase military support from the ever-willing United States.

But Beijing would still see Reed Bank fuel exploration as a case of “upsetting the apple cart,” says Carl Thayer, Southeast Asia-specialized emeritus professor of politics at The University of New South Wales in Australia. The Philippines wouldn't have too many credits left.